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BRINKER
INTERNATIONAL®
Annual Report 2013

Table of contents

  • Page 1
    INTERNATIONAL® BRINKER Annual Report 2013

  • Page 2

  • Page 3
    ...for our business. Growth is on the horizon as both Brinker brands return to building new restaurants. As we move forward into fiscal 2014, we're optimistic about our goals - our teams can execute against our strategy, which translates into increased shareholder value for you. Chili's Grill & Bar At...

  • Page 4
    ...productivity when placing and modifying guest orders. Newly installed back office systems help operators run their restaurants more efficiently than ever. In fiscal 2013, these systems helped us deliver great margins and an all-time low cost of sales. One of the largest investments made in our brand...

  • Page 5
    ... were set in motion years ago with our clearly defined 'Plan to Win.' As we look toward Brinker's promising future during fiscal 2014 and beyond, we remain committed to building sales through initiatives that enhance both the guest and team member restaurant experience, and strengthening our brands...

  • Page 6

  • Page 7
    ... LBJ Freeway, Dallas, Texas (Address of principal executive offices) 75240 (Zip Code) (972) 980-9917 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Common Stock, $0.10 par value Securities registered pursuant...

  • Page 8
    ... ordered by calling the restaurant or on-line or via mobile app, and most Chili's offer a separate To Go entrance for service. During the year ending June 26, 2013, at our company-owned restaurants, entrée selections ranged in menu price from $6.00 to $17.69. The average revenue per meal, including...

  • Page 9
    ...restaurant revenues for the year. Our average annual sales volume per Maggiano's restaurant during this same year was $8.81 million. Business Strategy We are committed to strategies and initiatives that are centered on long-term sales and profit growth, enhancing the guest experience and team member...

  • Page 10
    ...authentic Italian-American cuisine and signature drinks, improved service and updated atmospheres will result in stronger brands and sustainable sales and profit growth through increased guest loyalty and traffic. Global expansion allows further diversification which will enable us to build strength...

  • Page 11
    ... and train management and hourly team members. The following table illustrates the system-wide restaurants opened in fiscal 2013 and the planned openings in fiscal 2014: Fiscal 2013 Openings(1) Fiscal 2014 Projected Openings(1) Chili's: Company-owned ...Franchise(2) ...Maggiano's ...International...

  • Page 12
    ... States but also on smaller market areas and non-traditional locations (such as airports, college campuses and food courts) that can adequately support our restaurant brands. During the year ended June 26, 2013, our domestic franchisees opened two Chili's restaurants. Additionally, we acquired one...

  • Page 13
    ... aggregate dollar value in relation to revenues. Internationally, our franchisees and joint venture operations may encounter cultural and regulatory differences resulting in variances with product specifications for international restaurant locations. Advertising and Marketing Our brands generally...

  • Page 14
    ... support center personnel in Dallas, and 3,974 were restaurant area directors, managers, or trainees. The remaining 50,035 were employed in non-management restaurant positions. Our executive officers have an average of 20 years of experience in the restaurant industry. We have a positive team member...

  • Page 15
    ... to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Risks Related to Our Business Competition may adversely affect our operations and financial results. The restaurant business is highly competitive as to price, service, restaurant...

  • Page 16
    ... levels, asset impairment charges and potential restaurant closures. Future slower global economic recovery or recessionary effects on us are unknown at this time and could have a potential material adverse affect on our financial position and results of operations. There is no assurance that the...

  • Page 17
    ...bodies with respect to zoning, land use and environmental factors could delay, prevent or make cost prohibitive the continuing operations of an existing restaurant or the development of new restaurants in particular locations. Due to our international franchising, we are also subject to governmental...

  • Page 18
    ...' ability to increase gross sales and operating profits at existing restaurants with food and beverage options and high quality service desired by our guests through successful implementation of strategic initiatives; identify adequate sources of capital to fund and finance strategic initiatives...

  • Page 19
    ... we depend heavily on the Chili's brand for a majority of our revenues, unfavorable publicity relating to one or more Chili's restaurants could have a material adverse effect on the Chili's brand, and consequently on our business, financial condition and results of operations. The speed at which...

  • Page 20
    ... to provide adequate services could have an adverse effect on our results of operations, financial condition or ability to accomplish our financial and management reporting. Disruptions in the global financial markets may adversely impact the availability and cost of credit and consumer spending...

  • Page 21
    ... in the market price of our common stock or changes in other circumstances that may indicate an impairment of goodwill could adversely affect our financial position and results of operations. We perform our annual goodwill impairment test in the second quarter of each fiscal year. Interim goodwill...

  • Page 22
    ... vs. foreign locations (by brand) as of June 26, 2013 (company-owned and franchised): Domestic (No. of States) Foreign (No. of countries and territories) Chili's ...Maggiano's ...Restaurant Property Information 1,265(50) 44 282(34) - The following table illustrates the approximate average dining...

  • Page 23
    ...New Jersey and Texas for use as regional operation offices. The size of these office leases range from approximately 100 square feet to approximately 4,000 square feet. Item 3. LEGAL PROCEEDINGS. In August 2004, certain current and former hourly restaurant team members filed a putative class action...

  • Page 24
    ... in our stock and each of the indexes on June 25, 2008 and its relative performance is tracked through June 26, 2013. The values shown are neither indicative nor determinative of future performance. 2008 2009 2010 2011 2012 2013 Brinker International ...$100.00 S&P 500 ...$100.00 S&P Restaurants...

  • Page 25
    ... high and low prices of the Company's shares on the date of vesting. During the fourth quarter of fiscal 2013, 1,493 shares were tendered by team members at an average price of $37.66. (b) The final amount shown is as of June 26, 2013. Item 6. SELECTED FINANCIAL DATA. The information set forth in...

  • Page 26
    Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The information set forth in that section entitled "Quantitative and Qualitative Disclosures About Market Risk" contained within "Management's Discussion and Analysis of Financial Condition and Results of Operations" is in our 2013...

  • Page 27
    ...of the members of Board of Directors and all of our team members, including, the principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of the code is posted on our internet website at the internet address...

  • Page 28
    ..." in our Proxy Statement to be dated on or about September 17, 2013, for the annual meeting of shareholders on November 7, 2013. We incorporate that information in this document by reference. PART IV Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a)(1) Financial Statements. We make reference...

  • Page 29
    ... of Chili's Grill & Bar (Principal Executive Officer) and Director Executive Vice President, Chief Financial Officer and President of Global Business Development (Principal Financial and Accounting Officer) Chairman of the Board Director Director Director Director Director Director Director Director...

  • Page 30
    ... Financial Data ...Management's Discussion and Analysis of Financial Condition and Results of Operations ...Consolidated Statements of Income-Fiscal Years Ended June 26, 2013, June 27, 2012, and June 29, 2011 ...Consolidated Balance Sheets- June 26, 2013 and June 27, 2012 ...Consolidated Statements...

  • Page 31
    ... Amendment No. 1, dated as of August 9, 2011.(8) 2013 Annual Report to Shareholders.(9) Subsidiaries of the Registrant.(10) Consent of Independent Registered Public Accounting Firm.(10) Certification by Wyman T. Roberts, President, Chief Executive Officer and President of Chili's Grill & Bar of the...

  • Page 32
    ...Filed as an exhibit to current report on Form 8-K dated May 15, 2013, and incorporated herein by reference. (4) Filed as an exhibit to registration statement on Form S-3 filed April 30, 2013, SEC File No. 333-188252, and incorporated herein by reference. (5) Filed as an Appendix A to Proxy Statement...

  • Page 33
    ... ...Balance Sheet Data: Working capital(b) ...Total assets(b) ...Long-term obligations(b) ...Shareholders' equity ...Dividends per share ...Number of Restaurants Open (End of Period): Company-operated ...Franchised/Joint venture ...Total ...Revenues of franchisees(c) ...2012 Fiscal Years 2011...

  • Page 34
    ... Grill & Bar ("Chili's") and Maggiano's Little Italy ("Maggiano's") restaurant brands. At June 26, 2013, we owned, operated, or franchised 1,591 restaurants. We are committed to strategies and initiatives that are centered on long-term sales and profit growth, enhancing the guest experience and team...

  • Page 35
    ... global business. Maggiano's continues to deliver sales growth and strong margin performance. Maggiano's offers a compelling menu and great value with Classic Pasta and Marco's Meal. Kitchen efficiency and inventory controls continue to enhance profitability and strengthen the business model. Global...

  • Page 36
    ... information is derived from the accompanying consolidated statements of income: 2013 Fiscal Years 2012 2011 Revenues: Company sales ...Franchise and other revenues ...Total revenues ...Operating Costs and Expenses: Company restaurants Cost of sales(1) ...Restaurant labor(1) ...Restaurant expenses...

  • Page 37
    ...other revenues. The increase in company sales was primarily attributable to an increase in comparable restaurant sales as follows: Fiscal Year Ended June 26, 2013 Comparable Sales Price Increase Mix Shift Traffic Capacity Company-owned ...Chili's ...Maggiano's ...Franchise(1) ...U.S...International...

  • Page 38
    ... pricing for chicken and favorable menu pricing. Restaurant labor, as a percent of company sales, decreased 0.2% in fiscal 2013 primarily driven by reduced hourly labor costs resulting from the installation of new kitchen equipment and lower manager bonuses, partially offset by increased employee...

  • Page 39
    ...2013 from 27.6% in fiscal 2012 primarily due to increased earnings, lower tax credits and lower favorable reserve adjustments related to resolved tax positions, partially offset by the increased tax benefit resulting from higher special item charges in the current year. The effective income tax rate...

  • Page 40
    ... year. The working capital deficit decreased to $191.6 million at June 26, 2013 from $203.6 million at June 27, 2012. The decrease was driven primarily by the timing of operational payments and decreased profit sharing and manager bonus accruals, partially offset by an increase in the gift card...

  • Page 41
    ... the prior year primarily due to $549.5 million in proceeds related to the $550 million public debt offering and increased borrowing on the revolving credit facility. The decrease is partially offset by payments to retire the 5.75% senior notes and pay-off of the revolving credit facility balance as...

  • Page 42
    ... a combination of menu price increases and reviewing, then implementing, alternative products or processes, or by implementing other cost reduction procedures. CRITICAL ACCOUNTING ESTIMATES Our significant accounting policies are disclosed in Note 1 to our consolidated financial statements. The...

  • Page 43
    ... amount over the fair value. We determine fair value based on projected discounted future operating cash flows of the restaurants over their remaining service life using a risk adjusted discount rate that is commensurate with the risk inherent in our current business model. This process requires the...

  • Page 44
    ... value based on projected discounted future operating cash flows of the restaurant brands using a risk adjusted discount rate that is commensurate with the risk inherent in our current business model. We make assumptions regarding future profits and cash flows, expected growth rates, terminal values...

  • Page 45
    ... and no amount was outstanding under the revolving credit facility. The impact on our annual results of operations of a one-point interest rate change on the outstanding balance of these variable rate financial instruments as of June 26, 2013 would be approximately $2.1 million. We purchase certain...

  • Page 46
    ... INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) Fiscal Years 2013 2012 2011 Revenues: Company sales ...Franchise and other revenues ...Total revenues ...Operating Costs and Expenses: Company restaurants Cost of sales ...Restaurant labor ...Restaurant...

  • Page 47
    ... INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) 2013 2012 ASSETS Current Assets: Cash and cash equivalents ...Accounts receivable ...Inventories ...Prepaid expenses and other ...Income taxes receivable ...Deferred income taxes ...Total current...

  • Page 48
    ... ...Purchases of treasury stock . . Issuances of common stock . . Excess tax benefit from stockbased compensation ...Balances at June 26, 2013 ...74,342 0 0 0 (9,176) 2,278 0 67,444 $17,625 $477,420 $2,217,623 $(2,563,311) $ See accompanying notes to consolidated financial statements. F-16

  • Page 49
    BRINKER INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) 2013 Fiscal Years 2012 2011 Cash Flows from Operating Activities: Net income ...$ 163,359 $ 151,232 $ 141,060 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and ...

  • Page 50
    ... revenue and operating expense trends. Company sales includes revenues generated by the operation of company-owned restaurants and gift card redemptions. Franchise and other revenues includes royalties, development fees, franchise fees, Maggiano's banquet service charge income and certain gift card...

  • Page 51
    ...of food, beverages and supplies. During fiscal 2013, we completed the implementation of a new restaurant information system for all company-owned Chili's restaurants and began the implementation process for all Maggiano's restaurants. Inventories located at the converted restaurants are valued using...

  • Page 52
    ... of impairment testing. Our two restaurant brands, Chili's and Maggiano's, are both reporting units and operating segments. We have established that the appropriate level to evaluate goodwill is at the operating segment level. The menu items, services offered and food preparation are virtually...

  • Page 53
    .... When we have disposed a restaurant brand and all related restaurants, the entire goodwill balance associated with the reporting unit or brand has been included in the disposal group for purposes of determining the gain or loss on the disposition. (m) Liquor Licenses The costs of obtaining non...

  • Page 54
    ...35 and $7.20 during fiscal 2013, 2012 and 2011, respectively. The fair value of stock options is estimated using the Black-Scholes option-pricing model with the following weighted average assumptions: 2013 2012 2011 Expected volatility ...Risk-free interest rate ...Expected lives ...Dividend yield...

  • Page 55
    ... processes Type or class of customer Methods used to distribute products or provide services The nature of the regulatory environment, if applicable Our two brands have similar types of products, contracts, customers and employees and all operate as fullservice restaurants offering lunch and dinner...

  • Page 56
    ... in the consolidated statement of income in fiscal 2013. 4. OTHER GAINS AND CHARGES 2013 2012 2011 Loss on extinguishment of debt ...Gain on the sale of assets, net (see Note 3) ...Restaurant impairment charges ...Restaurant closure charges ...Severance and other benefits ...Impairment of liquor...

  • Page 57
    ... in support of our strategic goals and evolving business model. We incurred $2.2 million and $5.0 million in severance and other benefits resulting from these actions in fiscal 2013 and 2011, respectively. The severance charges are net of income related to the forfeiture of stock-based compensation...

  • Page 58
    ...consist of the following (in thousands): 2013 2012 Payroll ...Gift cards ...Sales tax ...Insurance ...Property tax ...Dividends... is as follows (in thousands): 2013 2012 2011 Income tax expense at statutory rate ...FICA tax credit ...State income taxes, net of Federal benefit ...Other ... $ 80,610 (...

  • Page 59
    ... unrecognized tax benefits for the fiscal years ended June 26, 2013 and June 27, 2012 are as follows (in thousands): 2013 2012 Balance at beginning of year ...Additions based on tax positions related to the current year ...Additions based on tax positions related to prior years ...Settlements with...

  • Page 60
    ...million prior to debt issuance costs and utilized the proceeds to redeem the 5.75% notes due in June 2014, pay down the revolver and fund share repurchases. The new notes require semi-annual interest payments beginning in the second quarter of fiscal 2014. Our credit facility includes a $250 million...

  • Page 61
    ...June 26, 2013, future minimum lease payments on capital and operating leases were as follows (in thousands): Fiscal Year Capital Leases Operating Leases 2014 ...2015 ...2016 ...2017 ...2018 ...Thereafter ...Total minimum lease payments(a) ...Imputed interest (average rate of 7%) ...Present value of...

  • Page 62
    .... We determined fair value based on projected discounted future operating cash flows of the restaurants over their remaining service life using a risk adjusted discount rate that is commensurate with the risk inherent in our current business model. In fiscal 2013, one transferable liquor license...

  • Page 63
    ... or upon an employee's death, disability or involuntary termination. Transactions during fiscal 2013 were as follows (in thousands, except fair values): Number of Restricted Share Awards Weighted Average Fair Value Per Award Restricted share awards outstanding at June 27, 2012 ...Granted ...Vested...

  • Page 64
    ...June 26, 2013, we had $22.4 million in undrawn standby letters of credit outstanding. All standby letters of credit are renewable annually. In August 2004, certain current and former hourly restaurant team members filed a putative class action lawsuit against us in California Superior Court alleging...

  • Page 65
    ... remaining interest in Macaroni Grill in the fourth quarter and net gains of $2.3 million and $0.4 million related to land sales in the second and fourth quarter, respectively. Net income for fiscal year 2012 included lease termination charges related to previously closed restaurants of $0.5 million...

  • Page 66
    ... Public Accounting Firm The Board of Directors and Shareholders Brinker International, Inc.: We have audited the accompanying consolidated balance sheets of Brinker International, Inc. and subsidiaries ("the Company") as of June 26, 2013 and June 27, 2012, and the related consolidated statements...

  • Page 67
    ... of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Brinker International, Inc. and subsidiaries as of June 26, 2013 and June 27, 2012, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in...

  • Page 68
    ...in its attestation report which is included herein. /s/ WYMAN T. ROBERTS WYMAN T. ROBERTS Chief Executive Officer, President and President of Chili's Grill & Bar /s/ GUY J. CONSTANT GUY J. CONSTANT Executive Vice President, Chief Financial Officer and President of Global Business Development F-36

  • Page 69
    ... MAGGIANO'S TEXAS, INC., a Delaware corporation BIPC MANAGEMENT, LLC, a Delaware limited liability company BIPC ME JLT, a Dubai Free-Zone company BIPC INVESTMENTS, LLC, a Delaware limited liability company BRINKER INTERNATIONAL GOLF CLASSIC, a Texas non-profit corporation BRINKER FAMILY FUND...

  • Page 70
    .... of our reports dated August 26, 2013, with respect to the consolidated balance sheets of Brinker International, Inc. as of June 26, 2013 and June 27, 2012, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended...

  • Page 71
    ...involves management or other employees who have a significant role in the registrant's internal control over financial reporting. b. Dated: August 26, 2013 /S/ WYMAN T. ROBERTS Wyman T. Roberts, Chief Executive Officer & President and President of Chili's Grill & Bar (Principal Executive Officer)

  • Page 72

  • Page 73
    ..., that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. b. Dated: August 26, 2013 /S/ GUY J. CONSTANT Guy J. Constant Executive Vice President, Chief Financial Officer and President of Global Business Development...

  • Page 74

  • Page 75
    ... the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: August 26, 2013 By: /S/ WYMAN T. ROBERTS Name: Wyman T. Roberts Title: President, Chief Executive Officer and President of Chili's Grill & Bar...

  • Page 76

  • Page 77
    ..., in all material respects, the financial condition and results of operations of the Company. Dated: August 26, 2013 By: /S/ GUY J. CONSTANT Name: Guy J. Constant Title: Executive Vice President, Chief Financial Officer and President of Global Business Development (Principal Financial Officer)

  • Page 78

  • Page 79
    ... New York Stock Exchange. The company also filed the CEO and CFO certifications required under Section 302 of the Sarbanes-Oxley Act of 2002 with the Securities and Exchange Commission as exhibits to its Annual Report on Form 10-K for the year ended June 26, 2013. Chili's® Grill & Bar and Maggiano...

  • Page 80
    BRINKER INTERNATIONAL® 6820 LBJ Freeway, Dallas, TX 75240 • www.brinker.com